Overview of the AIFP (Automotive Industry Financing Program)

AIFP is the Automotive Industry Financing Program--a federal program that was designed to avoid financial collapse of American automotive industry. The program is better known as the bailout for General Motors and Chrysler, two of the so-called Big Three automobile manufacturers. AIFP was created under the Bush administration and continued under Obama administration. AIFP would provide loans to help the GM and Chrysler avoid bankruptcy. In return, they were required to restructure their operations in a way that would their long-term viability. While the program didn't prevent GM and Chrysler from succumbing to bankruptcy, it prevented total collapse and gave the companies a second chance. Whether or not that second chance will be enough remains to be seen.

Background and Structure

During the most recent global financial crisis, three long-standing American automakers found themselves hovering on the verge of bankrupcy. Economic estimates suggested that if the Big Three were allowed to collapse, the country would face massive job losses and over a hundred billion dollars worth of lost revenue. The Big Three executives argued that the U.S government could not afford such losses and requested federal funds to ensure their continued survival.

After a series of highly contentious negotiations, the U.S. Congress approved the creation of Automotive Industry Financing Program. The program provided funding to tide the Big Three over while they looked for ways to restructure their operations. They could not receive the bulk of the funds until they came up with restructuring plans that satisfied the federal government. Ultimately, GM and Chrysler chose to apply for AIFP funds, while Ford decided to try to recover on it's own. When they could not come up with a satisfactory restructuring plan, both companies filed for bankruptcy. However, the infusion of federal loans allowed them to file for Chapter 11 bankruptcy, which allowed it obtain debt forgiveness, sell assets and renegotiate contracts in ways that they couldn't otherwise do, putting them in better position to restructure themselves than ever before.

Eligibility Requirements

Under the AIFP guidelines, automakers who applied for it's bailout funds had to fit the following criteria:

  • Significance of scale--the automaker forms a significant part of the American automotive industry, so significant that it's collapse would affect the industry as a whole.
  • Impact of collapse--the automaker's financial collapse would cause noticeable unemployment increase throughout United States.
  • Effect on credit markets--the automaker's financial collapse would cause a major disruption to American's credit markets and increase market uncertainty.
  • Chances of survival--in spite of it's loses, the automaker would be able to access enough alternative sources of capital and liquidity to turn itself around and eventually return to profitability.

What AIFP Entails

Aside from providing funds to allow GM and Chrysler to restructure, AIFP also provided funds to support their auto parts suppliers and guaranteed warranties on the vehicles they manufactured. This was meant to insure that they could make their vehicles without interruption and gave customers an incentive buy GM and Chrysler's cars. Under Obama administration, both companies' were required to come up with ways to manufacture energy-efficient vehicles (which includes both hybrid and electrically powered vehicles) as part of their restructuring plans. The federal government will not contribute any additional funds until their restructuring plans prove to be successful.

Current Financial Status of GM and Chrysler

The bankruptcy essentially splits each company into two entities. The first entity inherited debt and payment obligations, as well as certain assets, while the second entity took over the company's operating assets and trademarks (and with it, the company's names and logos). In Crystler's case, the second entity is partially owned by Fiat, an Italian automaker. This separation allowed GM and Chrysler to start anew while other, legally unrelated companies work to repay their pre-bankruptcy debts. However, the new companies have inherited the original's AIFP loan obligations. As of this writing, both companies have partially repaid their loans, leaving them under the purfew of AIFP.

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